Another Oil Shock?

Possibly yes.

Here’s a quick review of what’s currently impacting oil pricing.

The violence in Iraq continues as radical Islamist militants from the Islamic State of Iraq and the Levant (ISIL) try to seize more territory in the northern part of the country. Iraq is the second largest oil producer in OPEC (after Saudi Arabia) and the conflict is likely to affect production in the region. The price of brent crude oil climbed from just over $108 per barrel last Monday to more than $113 today, closing at $112.94. Mark Shenk reports for Bloomberg that analysts expect the price to average $116 by later this year, although prices won’t necessarily go too much higher if the fighting stays in the north of the country, where comparatively little oil is produced.

While ISIL was fighting in Mosul, the independence-minded Kurds seized the opportunity to take control of Kirkuk, an oil-rich city in northeast Iraq (great background on that in Al Jazeera). “This crisis is a lifeline for the Kurds”, political risk analyst Kirk Sowell says in Vox. Earlier this year, Baghdad cut off money to the semi-autonomous Kurdish region because of a political dispute over exporting oil to Turkey. By May, the region was nearly insolvent. However, now that they’ve taken control of Kikurk, the Kurds can pump oil directly to Turkey from without intervention from Baghdad. In the short term, though, the Kurds still have problems. A major pipeline to Turkey was destroyed in the fighting last week, and “the violence will doom attempts to repair the pipeline anytime soon, delaying major Kurdish oil exports”, says Nick Cunningham.

“Most analysts still say there is no immediate threat to Iraq’s southern oil fields, which account for approximately 90 percent of the country’s production and oil export”, writes Clifford Krauss. But keeping Iraq’s oil production stable is crucial for the United States because of geopolitical concerns. Declining production from Iraq, Krauss writes, will send the world looking for supply in Iran, Russia, and Venezuela.

Alen Mattich writes that the U.S. may not face an immediate oil shock, especially because North American oil production has increased so much in recent years, but America isn’t completely insulated:

Combine Iraq’s current trauma with the Saudi-Iranian (the world’s number two and number six producers) proxy war being pursued in Syria and the prospect of escalating tensions with Turkey were Iraq’s Kurdish region to seek full sovereignty, not to mention the risk that the simmering conflict between Russia (third biggest global producer) and Ukraine and there’s plenty for investors to worry about.

In the event Iraq’s supply was disrupted, says Bank of America Merrill Lynch commodities strategist Peter Helles, brent crude prices could jump as much as $40-50 — certainly enough to qualify as a shock.